Is It A Business? or Is It A Service? Part 2

Can A Fiduciary Form a Corporation?

Most professions can form a simple businesses structure which allows an owner experienced in the work to train employees and pass on knowledge, processes, and goodwill.  It also can shield them from personal liability.  (For an overview of the issues surrounding business formation, see Part 1,  first posted on 8/7/13).

This does not work for fiduciaries.  According to the California probate code and the business and professions code which established the licensing and oversight of professional fiduciaries, only an individual can be named as a fiduciary.  An attorney can offer these services, but they are not allowed to advertise that they offer these services as part of their legal practice.

 

To make things more complicated, most tax advisors recommend that the IRS can and will disallow an agent's personal income which they assign to their corporation.

If a corporation offers fiduciary services, it must be formed as a Trust Company. Professional fiduciaries who plan to attend the Northern California Education Day for Professional Fiduciaries Association of California (PFAC) on September 12, 2013 will have a chance to gain insights from a number of panelists, including attorneys, on whether fiduciaries can engage in a business formation.  You can read this article (Part 1 & Part 2); request our overview by commenting below; and, listen to how other fiduciaries have chosen to address this topic; then speak with your business advisors and form your own opinion.

Why bother thinking of fiduciary services as a business at all, if we are hindered from forming a corporation? 

Developing Field Craft

 

Our practice as professionals is built around offering expertise in the practical and legal requirements of closing or managing an estate.  This expertise is built over time and a variety of case experiences, not just the singular experience of handling a family member’s estate and taking the classes to obtain a license.

As Malcolm Gladwell has become famous for noting about Master Class level performance, “The emerging picture from such studies is that ten thousand hours of practice is required to achieve the level of mastery associated with being a world-class expert—in anything,” writes the neurologist Daniel Levitin.   The point made in Gladwell's  book, Outliers, is instructive. To stand out: patiently and consistently build expertise through practice, more practice, and even more practice. 

Where can a new professional fiduciary “practice” in our field without putting ourselves and our clients at risk?   Here is one reason for a corporation in our profession. To create a structure that mutually and collaboratively supports experienced fiduciaries and trains new fiduciaries in their field craft.

Services can be businesses.  Businesses can offer services.  But, the service offered by professional fiduciaries is best when offered as part of a collaborative group; formed to support each other and present the marketplace with the right information needed to select just the right fiduciary to fit a particular situation. Only a professional business structure can give potential clients the comfort of working with someone with a long-term, consistent business plan.

 

Only a professional business structure can give you the boost you need. If you are interested in how the ACE Fiduciary Group can help you excel in your marketplace find out more at www.ACEfiduciary.com.

Is It A Service? or, Is It A Business?

What type of business structure best fits professional fiduciaries? Part 1

Professional Services Offered

When professional fiduciaries take on clients, we work for the benefit of a living person who needs help making decisions and after a death, for the beneficiaries of the estate. We are licensed by the state of California to be estate Administrators, Conservators, and private trustees. We are a bit like family members who take on these roles out of obligation, duty or love: but we are not like family members in a number of ways.  One of these is we are not part of the family system.  This means we tend to be able to work towards the goal and minimize inter-family conflict. The other is that we charge reasonable fees for our services.

Sometimes a family member chooses not to collect fees for this work (although they are entitled to do so).  Professional fiduciaries are building a professional presence through our practice, and we earn fees for this vital service; but is it a business?

The work of a fiduciary is a cross between personal services and business management.  Professional fiduciaries handle much of the same type of work as a bank trust department, but we can also offer the types of services that banks cannot  -  Conservatorships and Financial or Health Agent.  The nature of our “business” is personal. We often form deep, abiding, long-term relationships  with our clients and their family. 

Business Formation

Businesses are formed to better organize people into focused activities to serve clients in a consistent and dependable manner. Because a corporation is deemed a “person” under the law, business owners sometimes form a  corporation, even when there is only one owner and that owner is the only employee.  Business owners do this because a properly formed and maintained business structure can shield the individual owner from business liability. Individuals create a business structure to shift some expenses to business expenses; hire employees; and, create an entity that can be sold or passed on to the next generation. 

These are all reasons that some professional fiduciaries have used a corporate form for their businesses.  A commonly used business structure in California is an S-Corp. While useful to many types of small service businesses, it may not be helpful in offering fiduciary services.

The form of a business structure is determined by state law.  Each type of structure approved under California law has a different purpose. Some, like limited liability partnerships, are only available to certain types of professions (for example, attorneys) not to fiduciaries.  If you would like an overview of issues surrounding business formation and structures, send an email or post a comment below.

 

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